New forecasts cast doubt on Trump’s economic goals

President Trump faces an uphill climb to deliver on his promise of sustained 3 percent growth, according to new data in a report from the nonpartisan Congressional Budget Office (CBO).

While the $1.5 trillion tax cut in the his signature 2017 tax law boosted growth last year to about 3.1 percent, surpassing the 3 percent mark for the first time since 2005, CBO projects moderate economic expansion heading into Trump’s reelection campaign.

For 2019, CBO projected growth slow to 2.3 percent, and then 1.7 percent in 2020.

{mosads}The spike in growth last year followed increased spending and a massive tax break that stimulated the economy above what CBO labels its potential growth rate. Now, with economists projecting that the “sugar high” is wearing off, CBO is predicting several years of growth below the potential rate.

The CBO’s report on Monday also found that other Trump policies were affecting the economy.

The five-week partial government shutdown that ended Friday lopped $11 billion off the economy, but some $8 billion of that is expected to bounce back now that the government has reopened and federal workers will start receiving their back pay.

That will equate to a 0.2 percentage point drop in the fourth quarter of 2018 — the shutdown began on Dec. 22 — and a 0.4 percentage point drop in the first quarter of 2019.

White House National Economic Council Director Larry Kudlow downplayed the report later on Monday, saying “it’s awfully hard to make even the best guesstimates of those kinds of small fractions of numbers.”

CBO also said Trump’s trade wars are poised to weigh on the economy, saying the trade wars have led to import taxes on 12 percent of all incoming goods, or $284 billion worth of imports. Retaliatory tariffs, in turn, have been placed on 9 percent of U.S. exports, worth about $134 billion.

“On net, CBO estimates that the new tariffs on both imports and exports will reduce U.S. real GDP by about 0.1 percent, on average, through 2029,” the report said.

Chinese Vice Premier Liu He will be in Washington for trade talks this week, just days after U.S. Commerce Secretary Wilbur Ross said the two sides were “miles and miles” away from striking a deal.

The Dow Jones Industrial Average sank as much as 400 points in midday trading Monday, extending a tumultuous period of volatility that has followed the initial “Trump bump” in 2017.

The fiscal situation is also setting up an debt level that CBO Director Keith Hall called “troubling.”

“Debt is on an unsustainable course,” he said on Monday, noting that further increases will negatively affect wages, productivity and the odds of a financial crisis.

By 2025, the government will spend more on interest payments than on defense, CBO projected.

Borrowing money to stimulate the economy is standard practice during downturns, but is unusual for periods of strong growth. Hall pointed out that the deficit projection of 4.4 percent of GDP over the next decade seemed out of place.

“That average deficit is not only large but also unusual for times of low unemployment,” he said.

Reversing that trend would require revising policies that borrowing money to fund tax cuts and spending and finding a solution to making mandatory programs such as Social Security, Medicare and Medicaid sustainable — a challenge that has faced previous administrations.

“The debt doesn’t just burden future generations, it also stands in the way of economic and political progress today,” said Committee for a Responsible Federal Budget president Maya MacGuineas. “CBO’s annual report is a reminder that the situation is getting worse, not better.”

Tags Donald Trump Wilbur Ross

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